By NATARIO McKENZIE
Tribune Business Reporter
Bank of the Bahamas' (BOB) latest $166 million 'bail out' was yesterday described as "the best shot" to rescue it, its newly-appointed chairman revealing the deal will likely be "consummated" on or before August 10.
"The Government is preparing to infuse $166 million into BOB," Wayne Aranha told shareholders at the BISX-listed institution's annual general meeting (AGM) on Wednesday night.
"This commitment came since our appointment, and so it's not a question of the new government honouring a contract given to the old government. This is something entered into recently. It's so new that we are in the process of trying to consummate the deal on or before August 10."
The new 'bail out' is essentially a repeat of the first Bahamas Resolve transaction from October 2014, although the sums involved are much higher.
The latest rescue will remove some $166 million worth of 'toxic' commercial loans from BOB's balance sheet and transfer them to the Bahamas Resolve special purpose vehicle (SPV).
The loans, which are to be paid for at gross book value, will be exchanged for promissory notes (government IOUs or bonds) that will be provided by Bahamas Resolve. This will fill the hole left on BOB's balance sheet by the removal of the impaired loans.
The transaction effectively represents a significant transfer of liability/risk from BOB and its shareholders to the Bahamian taxpayer, who is now on the hook for collecting on these 'bad' loans and securing their underlying collateral (real estate) via Bahamas Resolve.
Given the sheer size of the $166 million 'bad loan' portfolio, it appears likely that the taxpayer will be stuck with a 'bad bank' in the shape of Bahamas Resolve for decades.
The Government is also supposed to redeem $107 million of the promissory notes now held by BOB before the June 30, 2018, end of this current fiscal year.
It will make a $50 million payment on August 30, followed by another $19 million on November 30, 2017. The balance will be paid in further quarterly instalments on February 28, 2018, and May 31, 2018.
The Government is making the redemptions on Bahamas Resolve's behalf, recognising that the SPV has no possibility of doing this by itself.
This is because Bahamas Resolve has only managed to sell two of the properties upon which its original October 2014 'bad loan' portfolio was secured.
Bahamas Resolve's recoveries were supposed to finance the bond interest payments to BOB, but the SPV's inability to rapidly collect on the collateral will likely mean further taxpayer exposure - once the $166 million 'bail out' goes through - in terms of having to meet the interest liabilities.
Mr Aranha, meanwhile, suggested that BOB would make further demands on the taxpayer by seeking "cost recovery" from the Government if it was asked to provide branches on remote, unprofitable Family Islands.
The bank is due to open its Bimini branch on August 21, 2017, replacing the departing Royal Bank of Canada (RBC). Addressing queries over the move at the AGM, Mr Aranha said: "One of the things we had discussed with government was that we can't be operating branches at a loss. We have to come to some working arrangement. If there is a national desire for a bank to be there, and Bank of the Bahamas is approached about going, I think BOB goes and the appropriate arrangement is made."
BOB already operates locations in Family Islands such as Andros (two), Inagua, San Salvador and Exuma, all of which are likely to produce marginal profitability at best.
But BOB shareholder and former FNM senator, Darron Cash, told Tribune Business: "At first look one might get the impression the expansion into a small Family Island community, particularly a full-fledged branch with all operating costs, might not be financially viable.
"The argument can be made as to whether it makes financial sense, and whether the level of demand and business is there. The caveat or part of the reality that I think everyone has to acknowledge is that to the degree that BOB will rely on the financial support of the Government and the Bahamian people is the degree we ought to expect the bank to be responsive to the Government's calls for the bank to be in some communities to satisfy those needs."
Mr Aranha, meanwhile, added that as at June 30, 2017, the bank's total assets amounted to $757.7 million, with liabilities at $691.2 million and total equity of $66.5 million.
"From initial reviews, there is a need to engage a more aggressive approach to reducing delinquencies. There is room for improving the collection of non-performing loans and procedures (and possibly resource adjustments) will be implemented imminently to ensure improvements are realised," he said.
"Asset realisation will be employed more frequently; the provisions established at 30 June, 2017 reflect a more aggressive approach in this regard. Facilities will be restructured where appropriate; serial restructuring will likely be indicative of a situation where restructuring would be inappropriate."
Acknowledging BOB's poor efficiency ratio, a function of reduced revenues and higher costs, Mr Aranha said: "Stringent cost control measures will be implemented, consistent with the need to ensure that risks are appropriately managed and customer service is not sacrificed."